Ty, Inc.

views updated

Ty, Inc.

founded: 1986

Contact Information:

headquarters: 280 chestnut ave.
westmont, il 60559 phone: (630)920-1515 fax: (630)920-1980 email: [email protected] url: http://www.ty.com

OVERVIEW

Ty Warner created a billion dollar industry based on an idea for a $5.00 pellet-filled toy cat that turned into a line of hundreds of avidly collected and traded Beanie Babies. Ty, Inc. rose to the rank of number one toy maker in 1998 and currently ranks as the third highest selling toymaker in the world, using Warner's unique marketing techniques, which kept his company shrouded in mystery and his Beanie Babies in high demand with limited volumes of an ever-changing lineup of cuddly characters. The Beanie frenzy of the late 1990s created an entire industry around the aftermarket sales of the toys, including trading clubs and auction Web sites, sometimes fetching $5,000 and more for rare or most-wanted Beanies. Selling toys with names like Legs the Frog and Chip the Cat made Warner himself a billionaire, ranked on The Forbes 400 list, while his company ranks consistently in The Forbes Private 500.

COMPANY FINANCES

Sales of the company in 2000 were estimated at $800 million, rising an estimated 36 percent from 1999. The company enjoys the third largest toy sales worldwide, behind Mattel and Hasbro. Ty also has the highest sales margin of the leading four toy makers, which includes Lego, Mattel, and Hasbro.

HISTORY

1962 was the year Ty Warner got his start in the toy business working with his father as a salesman at Dakin toy company. His former boss told People, "He was probably the best salesman I ever met." At Dakin, Warner learned the ins and outs of the toy business by selling the company's plush animals. He began dabbling in unorthodox marketing techniques, arriving at distributors in a white Rolls-Royce convertible he had purchased and dressed in a fur coat with a top hat and cane. He guessed, correctly, that it would intrigue retailers enough to see what he had for sale.

After eighteen years at Dakin, Warner was making more than $100,000 at the company but left in 1980. Warner told People he left to pursue other interests, but his former boss told the magazine he was fired for creating a competing line of toys.

Warner traveled to Sorrento, Italy, where he was inspired by the number of unique stuffed toy cats he saw there. Upon his return in 1983, his father died of a heart attack and left Warner $50,000. With that money, in addition to his savings from his time at Dakin and a second mortgage on his condo home, Warner began to develop a line of toys. In 1986 he formed Ty, Incorporated, and after working out of his home, moved to a small office in Oakbrook, Illinois. He hired two employees and found a production plant to manufacture his stuffed animals on a trip to Korea.

His first toy was a white Himalayan cat named Angel. In the first line, there were ten cats, all with different names like Peaches and Smokey, and in all different colors. "Kids identify with names. In the beginning, I thought of the cute names. Now I take them into the office and everyone makes suggestions," Warner told People. He was able to get buyers through his old Dakin contacts and sold the small, loosely filled pellet animals for $20.00. They sold well. At the Atlanta Toy Fair, Warner sold 30,000 in one hour.

After his success in Atlanta, Warner moved out of the little Oakbrook office and into a 12,000 square foot warehouse in Lombard, Illinois. He began a new line of toys, the Collectable Bears Series, in 1991. They were limited edition bears, each with a numbered stripe on their right foot. Ty, Inc.'s 1992 catalogue featured these bears and the original cats, in addition to a variety of new animals like dogs and monkeys in the $5.00 to $20.00 range.

Warner then decided to put his focus on a toy that children could easily afford and would like to collect. He wanted to create a quality toy line for the retail price of $5.00, which he felt to that point didn't exist.

In 1993, the first Beanie Babies were born: Brownie the Bear and Pinchers the Lobster. After tweaking these early attempts, there were nine Beanie Babies altogether in the first line unveiled at the New York Toy Fair. Warner called the flagship Beanies Chocolate the Moose, Cubbie the Brown Bear, Flash the Dolphin, Legs the Frog, Patti the Platypus, Pinchers the Lobster, Splash the Whale, Spot the Dog, and Squealer the Pig. By early 1994 the little toys with the characteristic heart-shaped tag were in stores.

Warner's marketing genius was keeping stores from carrying all the different kinds toys in the line. That way, people went hunting for them and kept demand high. He shunned all advertising and the toys weren't carried by toy retail giants like Toys "R" Us or Wal-Mart, yet soon Beanies were flying off the shelves of Hallmark stores and smaller retailers that carried the line. Warner also limited each store to a certain number of Beanies it could order each month. Making supply scarcer, he knew, would increase demand from avid collectors.

In 1995, he came up with another scheme: retiring certain styles after a while and putting out new styles to keep interest up. Warner himself designed all the different Beanies, except one, Spook, now called Spooky, that was designed by Jenna, his girlfriend's daughter.

The mystique Warner likes to keep around his products, his company, and himself is well known. He has no sign anywhere surrounding his Illinois headquarters and no listed phone number, sometimes frustrating retailers wishing to reorder. Warner claims the unlisted phone number is simply because he can't keep up with demand. He swears his employees to secrecy regarding the company and himself and has only agreed to a very limited number of interviews with the press.

FAST FACTS: About Ty, Inc.

Ownership: Ty, Inc. is a privately owned company solely owned by H. Ty Warner.

Officers: H. Ty Warner, Pres.; Michael W. Kanzler, CFO; Diane Digangi, Dir. of Human Resources

Employees: 1,000

Chief Competitors: Leading competitors of Ty, Inc. include toymakers Hasbro, Mattel, Applause, and Play-By-Play.

In 1998, Ty was named the leading toy maker in the country. That year, Ty, Inc. partnered with Cyrk, Inc., a corporate promotion company, to form the Beanie Baby Official Club. The club kit offered a chance to buy the exclusive Clubby Bear. The next year, the partnership began producing BBOC Trading Cards, but only lasted for four series of the cards, and another kit offering the new Clubby II Bear. Cyrk also produced a number of promotional items, including calendars, trading card accessories, and the special club bears. Cryk was unable to produce the Clubby Beanie Buddies in the time advertising, which is illegal, and was fired by Ty.

In August 1999, Ty, Inc. enigmatically announced on its Web site that it would discontinue making all the 325 different Beanie Babies after December 31 of that year. Collectors, who sometimes paid in the thousands for Beanies in aftermarkets like auction sites eBay and Beanienation.com, went wild. Fans emailed frantic messages to the company and prices bid online for the Beanies rose. Even the company's own employees were baffled. Some speculated that the reason behind the decision was that the secondary market had ebbed recently and it was an attempt to boost sagging sales. Although Ty did not gain from secondary sales, many retailers purchased the Beanies based on the aftermarket values, which were dropping. Stores began stocking up in droves after the announcement. When December 1999 finally arrived, Ty, Inc. decided to let the public vote on whether the company should produce Beanies in 2000. The vote was overwhelmingly pro-Beanie with 91 percent in favor of continuing Beanie production in the new millennium. Votes cost 50 cents each with Ty donating the proceeds to the Elizabeth Glaser Pediatric AIDS Foundation. Year 2000 sales were up 36 percent at $800 million.

In 2001, a special edition America Bear appeared with 100 percent of the profit from sales donated to the Disaster Relief Fund of the American Red Cross in honor of the victims of the attacks of September 11, 2001.

Warner's personal fortune has allowed him to embark on a second career as a hotelier. He purchased prestigious real estate, including the Four Seasons Hotel in New York City, the city's tallest hotel, the Four Seasons Resort in Montecito, and the San Ysidro Ranch near Santa Barbara, the honeymoon destination of John F. and Jacqueline Kennedy. He has renovated the New York and Santa Barbara hotels, with plans of expansion for the latter.

STRATEGY

Warner honed his unorthodox marketing techniques early in his toy career at Dakin and the unique sales style he cultivated there proved invaluable for his own business. Ty does not advertise its plush wares and keeps production numbers limited. The result has fueled collectors and has proven to be an ingenious way to keep people interested in new lines. The company relies on small, specialty retailers to distribute the toys instead of retail giants Wal-Mart or Toys "R" Us. Warner also prevents stores from carrying all the different kinds toys in the line. That way, people go hunting for them and keep demand high. The company also limits each store to a certain number of Beanies they can order each month. Making supply scarcer, the company knew, would increase demand from avid collectors. In 1995, Warner came up with another scheme: retiring certain styles after a while and putting out new styles to keep interest up.

Ty's strategy and intense privacy, however, also left some retailers feeling frustrated. Citing reasons including lack of communication, shipping issues, and invoicing problems, some disappointed retailers have opted out of carrying the line.

INFLUENCES

Due to the enormous success of its products, the company's ordering system became quickly outdated in 1997. With approximately 100,000 daily orders called in per day, Ty immediately issued orders to its technology employees to create a new system or it would suffer millions in losses. Given an unlimited budget to do so, an estimated $750,000 to $1 million was eventually spent on the new system and training, which served to cut order implementation time by two-thirds.

CHRONOLOGY: Key Dates for Ty, Inc.

1962:: H. Ty Warner begins career in toys at Dakin
1980:: Warner leaves Dakin after 18 years
1986:: Ty, Inc. formed
1993:: First Beanie Babies created
1994:: Beanie Babies hit the market
1998:: Ty named number one toy maker
1999:: Warner buys Four Seasons Hotel in Manhattan—city's tallest hotel
1999:: Ty announces retirement of all Beanie Babies; company holds online vote on whether to discontinue Beanies
2000:: People vote to continue Beanies
2001:: America Bear premieres, with all proceeds donated to victims of the September 11 attacks

Ever the marketing genius, Ty generated a wealth of free publicity when the toymaker threatened to end production of Beanies December 31, 1999. Shortly thereafter, it announced it would let the public decide the fate of the stuffed toys in a worldwide online vote that year. The results were tallied with a resounding 91 percent in favor on continuing the line. Some in the media speculated that the announcement was merely a publicity stunt and that the company had planned to keep making Beanies all along, as there were factory expansion plans still in the works and several Beanie names submitted for trademark at the time.

CURRENT TRENDS

Ty has explored expansion in several ways. The company's introduction of Beanie Kids signaled growth beyond its traditional lines of beanbag animals only. Beanie Kids also have proven that Ty can produce a more sophisticated type of toy, with an emphasis on crafts-manship, detail and diversity found throughout the new line.

Exploring new markets with the help of the newly formed Ty Asia, Ty sought to expand distribution of its beanbag creations in Malaysia, Singapore, and Japan in addition to its existing sales channels in Germany, Canada, England, and the U.S. Its release of a Japan-only limited edition bear also signaled a move to solidify its presence in the region.

Ty responded to the widespread counterfeit of its Beanies by developing new, harder to copy holographic tags. The company also legally disputed the name of the Windermere Company's Web site named Ilovebeanies.com, which Ty claims encroaches on its own Web site, www.beaniebabies.com. Windermere also retails a number of other similar beanie toys, including Meanie Beanies, Salvino's Bammers, and the Grateful Dead Bean Bears. A copyright infringement lawsuit was also filed against HolyBears, Inc. in 1999 for creating a similar product. No stranger to lawsuits, Ty has gone after approximately 70 companies making Beanie look-alikes, successfully settling a majority of its cases.

PRODUCTS

To implement its line of Beanie animals, in 2000, Ty introduced Beanie Kids dolls, which were created from the likenesses of children. There are 13 different dolls in the line, which measure about 10 inches long, including Angel, Boomer, Buzz, Calypso, Chipper, Cookie, Curly, Cutie, Ginger, Precious, Princess, Rascal, and Tumbles. The line features soft bodies and a variety of skin, hair and eye colors. The dolls, praised for their detail and craftsmanship, are clad in Ty Gear, outfits that exemplify each doll's culture and origin. In continuing efforts to discourage the widespread problem with counterfeit Beanies, the company has developed holograms which are difficult to duplicate or forge.

CORPORATE CITIZENSHIP

Ty's success has also allowed the company to show its philanthropic side. The specially-designed Princess Bear raised more than $15 million for the Diana, Princess of Wales Memorial Fund. Beanies were donated to refugee children in Kosovo. Votes to keep Beanie's in business at 50 cents each in 1999 were donated to the Elizabeth Glaser Pediatric AIDS Foundation and all proceeds from the special edition America Bear created in 2001 were donated to the Disaster Relief Fund of the American Red Cross in honor of the victims of the attacks of September 11, 2001. The company promised at least $1 million to the Red Cross but expects worldwide sales of the America Bear to greatly surpass that number.

BEANIE MANIA

Certain rare Beanie Babies, which originally retailed for about $5.00, have been known to sell in aftermarkets for up to $6,000 to avid collectors. The most expensive Beanie ever, however, known as Number One, is a numbered, limited edition given to 253 Ty representatives. It has sold for more than $10,000 at Beanie shows and on Internet auction sites. Rare Beanies continue to rise in value, if they are in mint condition with the original Ty tag affixed.

GLOBAL PRESENCE

Ty markets its Beanie creations in the U.S., Canada, England, Germany and Japan. A desire to further expand into the Asian market resulted in the formation of Ty Asia in 2000, which rated a 12 percent market share in Malaysia and Singapore. A limitededition pink bear, Sakura, was introduced exclusively in Japan by Ty Asia in March 2000 to great success, with bids for the bear going as high as 60 times above its retail price. The company announced in October 2001 that it would open its first store in Korea in November of that year. Ty plans to sell Beanie Babies and Beanie Buddies, two of its seven lines of toys, in the Korean market.

EMPLOYMENT

Famed for its uniquely insular culture, Ty employees are sworn to secrecy and Warner rarely gives interviews. The company's phone number was even made unlisted at one point. Ty does share the wealth from its Beanie empire with its workers, however. In 1998, Warner handed out bonuses to all 300 Ty employees equal to their annual salaries and often gives out special edition Beanies to them as well. As of 2000, employee numbers were estimated at 1,000.